Micron expands on acquisition news; Transocean steady; Gaylord Entertainment, Wyndham up

By Rebecca Melvin

New York, Feb. 10 - Micron Technology Inc.'s 1.875% convertibles expanded on a hedged basis Wednesday and the Micron 4.25% convertibles were essentially flat after news that the Boise, Idaho-based maker of memory chips agreed to buy privately held Numonyx in an all-stock transaction for about $1.27 billion.

Transocean Inc.'s convertible bonds and stock were steady in trade, with a pricing dislocation making the Transocean series B convertibles appear cheaper than its two sister issues, based on their discount rates, according to Barclays Capital convertibles research.

Gaylord Entertainment Co.'s convertibles were better after an analyst upgrade on the heels of the hotel operator's fourth-quarter loss, but improved 2010 outlook, which sees revenue per available room likely to break into positive territory.

Earnings news also moved Wyndham Worldwide Corp.'s convertibles, which were higher after the lodging company posted a profit that beat estimates.

Wall Street and the surrounding area was socked in by a major snow storm Wednesday, but business appeared to carry on fairly normally, contrary to the federal government, which remained shut for a third straight day as Washington, D.C., got pummeled by the second heavy snow in less a week.

"Our desk was full when I went out," a New York-based sellside analyst said. "At least for the morning, it was pretty full."

No new issues were launched or priced in the U.S. primary market. But in Europe, Autonomy Corp. plc launched and priced £500 million of five-year convertible bonds to yield 3.25%.

Micron expands

Micron's 1.875% convertibles due 2014 traded down outright by about 3 points to 87 or 88, but on a hedged basis they "traded up," a New York-based sellside trader said.

One source cited a trade at 87 versus a share price of $8.40.

Shares of the flash memory maker settled lower by 54 cents, or 6%, at $8.54 on Wednesday.

"It traded well. There were better buyers on swap. It traded up," the sellsider said of the more actively traded Micron 1.875% bonds.

The Micron's 4.25% paper due 2013 was less actively traded and ended essentially flat on a hedged basis, with Trace reporting a trade at 178.6, which was down 2.5 points.

The Micron acquisition, which is expected to be accretive in less than two years, was seen as marginal news on the credit side, a sellsider said.

"People just would rather own the paper below par. It's more of a vol. play," the sellsider said, regarding why the Micron 4.25% paper was quieter.

Micron, Numonyx link up

Micron and Numonyx unveiled their agreement late Tuesday, under which Micron will issue 140 million Micron common shares to Numonyx shareholders, Intel Corp., STMicroelectronics, NV and Francisco Partners. Numonyx, which was created as a joint venture by Intel and STMicroelectronics, produces flash microprocessors used in MP3 players, mobile phones and digital cameras.

Up to 10 million additional Micron common shares will be issued ratably to Numonyx shareholders to the extent the volume weighted average price of Micron shares for the 20 trading days, ending two days prior to the close of the transaction, ranges between $7.00 and $9.00 per share.

According to the companies' news release, the deal further strengthens Micron's position as a leading memory company, with a portfolio of DRAM, NAND and NOR memory products and strong expertise in developing and supporting memory system solutions.

Micron also gains increased manufacturing scale globally and access to Numonyx's customer base, providing significant opportunities to increase multi-chip offerings in the embedded and mobile markets.

Micron currently estimates that the transaction would be accretive to the company on both free-cash flow and non-GAAP earnings beginning fiscal year 2011. In addition, it is anticipated that the Numonyx balance sheet will be debt free following closing.

The transaction is subject to regulatory review and other customary closing conditions and is currently anticipated to close within three to six months.

Transocean Bs seen cheaper than As, Cs

Transocean's 1.5% series B convertibles due 2037 traded at 97 on Wednesday, which was steady to lower compared to 96.75 on Tuesday.

Transocean's 1.625% series A convertibles due 2037 traded at 99.5, which was also steady to lower.

The Transocean 1.5% series C convertibles were seen little changed at 95.88.

Barclays Capital convertibles analysts said in a note published Tuesday that the Transocean B paper appeared to be cheaper than the other two issues, and they recommended buying the Bs outright, or buying the Bs and selling the A and C paper.

The analysts also recommended buying the Transocean B and C convertibles and selling the Transocean 5.25% straight bonds due 2013.

The Transocean B convertibles have a better yield to put than the A and C paper, at a 3.12% yield to a 1.85-year put, compared to a 2.37% yield for an 0.85-year put for the As and a 2.93% yield for a 2.85-year put for the Cs.

The technical dislocation that has the B paper looking cheaper compared to the other two issues is that the Bs have the highest option as spread, or discount rate, which doesn't seem justified given that it has the shortest maturity.

The discount rate is a variable that equates future cash flows to the market price.

On Wednesday, the option-adjusted spread on the Bs widened a bit to 254 basis points, and the two-year credit default swap at 49 bps didn't change that much.

Shares of the Switzerland-based oil and gas offshore contract drilling services company ended flat at $84.81 on Wednesday.

Gaylord adds

Gaylord's 3.75% convertibles due 2014 traded at 102.5 versus a share price of $21.00 in the first part of the day and were seen settling at about 100.5. That was up compared to 98 on Tuesday, according to a pricing source.

Shares of the Nashville, Tenn.-based hospitality company jumped $1.50, or 7.6%, to $21.20 in heavy trade.

A JPMorgan analyst upgraded Gaylord to "overweight" from "neutral," citing the company's strong fourth-quarter results and its outlook, which is for improving trends.

Gaylord, which owns and operates the Gaylord Hotels and Grand Ole Opry, said that for the quarter it lost $600,000, or a penny a share, compared to a profit of $8.4 million, or 20 cents a share, a year earlier.

Revenue edged down to $249.4 million from $250.6 million.

For the full year, Gaylord expects revenue per available room, or revPAR, to range from a decline of 2% to an increase of 1%, while total revPAR is expected to range from a 1% decline to a 2% rise.

In 2009, the company posted a revPAR decline of 10%, which was better than the overall lodging industry's decline.

Wyndham improves

Wyndham's 3.5% convertibles due 2012 traded at 173 versus a share price of $21.25, according to a sellsider, and Trace reported a transaction at 181.449, which was up 8.825 points on the day from 172.624.

Shares of the Parsippany, N.J.-based lodging company jumped $1, or 4.7%, to $22.22.

The company reported a profit that beat estimates, citing a slight increase in timeshare revenue, compared to the year earlier period when results were hurt by charges.

The company, whose brands include Ramada, Days Inn and Super 8, provided a 2010 revenue forecast in range of analysts' estimates.

Wyndham earned $73 million, or 40 cents per share, for the quarter. That compares with a loss of $1.36 billion, or $7.63 per share, in the period a year earlier, when the company recorded $8.10 per share in charges. And it beat Wyndham's prediction it would earn between 35 cents and 38 cents per share.

Revenue for the three months that ended Dec. 31 improved to $913 million from $911 million, topping Wall Street's estimate of $856 million.

Vacation ownership revenue rose 3% to $508 million, and exchange and rental revenue rose 3% to $258 million.

Autonomy rises above par

Autonomy's new 3.25% convertible bonds due 2015 were seen trading above par on their first day of secondary trading, a syndicate source said. Autonomy common stock closed at 1,522p on Wednesday, lower by 5.47% or 88p. The initial conversion price is £20.6334.

"They're doing well," the source said.

The bonds priced in the middle of price talk with an initial conversion premium of 35% over its volume-weighted average stock price during the day. Price talk for the Regulation S offering was at a coupon of 3% to 3.5% and an initial conversion premium of 30% to 40%.

The notes sold at par and are callable after the first three years subject to a 130% hurdle.

"The £500 million offering will enhance our ability to engage with potential acquisition targets and take advantage of opportunities as they arise later in the year," said Autonomy chief executive Mike Lynch in a statement.

Morgan Stanley & Co. International plc was the global coordinator and bookrunner.

Proceeds are earmarked for potential acquisitions, possible early repayment of outstanding bank debt related to its Interwoven acquisition, and for general corporate purposes.

Settlement is set for March 4, and application is being made to the London Stock Exchange to list the bonds on the Official List of the U.K. Listing Authority and for trading on the Professional Securities Market of the London Stock Exchange.

Autonomy is a Cambridge, England-based infrastructure software company.

Kenneth Lim contributed to this article.

Mentioned in this article:

Autonomy Corp. plc London: AU

Gaylord Entertainment Co. NYSE: GET

Micron Technology Inc. NYSE: MU

Transocean Inc. NYSE: RIG

Wyndham Worldwide Corp. NYSE: WYN

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